Container xChange, a Germany-based online container logistics platform that offers operational infrastructure for container management, conducted a survey on the 2023 outlook of almost 1,200 supply chain professionals worldwide. The survey revealed that these professionals are concerned about the possibility of a recession, geopolitical tensions, and cost pressures in the latter half of the year.
The survey aimed to understand the biggest challenges they foresee for their businesses in the latter half of the year showed that recession in the US remains the top concern, followed by geopolitical risks and rising operating costs.
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Recession in the US
In the survey, 49 per cent of them fear a recession in the US as a key concern for the freight forwarding industry.
“Interest hikes by central banks due to sticky inflation has put the balance sheets of many lenders under pressure, essentially forcing them to mark down assets or sell them off at a loss to cover short-term liquidity needs,” said Christian Roeloffs, co-founder and CEO of Container xChange.
The collapse of two US lenders in March caused a global banking crisis that spread to many economies, sparking fears of contagion. Emergency measures were taken by the US Federal Government and other agencies to backstop the financial system, but stress in the banking sector has grown. This has led to increased odds of a US recession within the next 12 months, according to Goldman Sachs, with implications for the market.
There are ramifications of Russia’s invasion of Ukraine and there are rising tensions between China and Taiwan. While China has pioneered investments over the past twenty years into infrastructure projects, bridges, roads, terminals, and ports in South America and Africa, Taiwan is the biggest manufacturer of semiconductors. It is worth considering how these investments and the dependency of those countries will impact global trade, the survey said.
Rising operating costs
The demand for freight declined significantly after it reached its peak in September 2021. The profit margins reported in the Q1 of 2023 by shipping lines were still strong because of the pre-negotiated contract rates but we do expect these to be sliding significantly. As the contract negotiations are underway, we will soon see revised rates which will then impact the profitability of the shipping lines in the second half of 2023 and into the year 2024.
The bright side
There is some positive news in the container shipping industry, particularly in Asia. Despite the current oversupply of equipment, freight rates and container prices appear to have stabilised in Asia showing resilience in the intra-Asia trade routes. This could be good news for businesses that rely on container shipping as it means they can anticipate more predictable shipping rates and potentially more stable supply chains.
Supal Shah from Arcon Containers, India commented on the Asia outlook, “The freight rates and container prices seem to have bottomed out; I don’t see big change on either side as there is a huge supply of equipment. On the positive side, Chinese factories are not producing too many new units so over the long run this will have a positive impact on demand and supply and price of the containers.